to View Preface

the Authors
was an auditor with Price Waterhouse
(now PricewaterhouseCoopers) and a
financial administrator at the University
of Chicago. She received her B.S. from
Pennsylvania State University, her M.B.A.
from DePaul University, and her Ph.D.
from the University of Michigan; she is
also a CPA.
Robert Libby
Robert Libby is the David A. Thomas Professor of
Management at the Johnson Graduate School of
Management at Cornell University, where he teaches the
introductory financial accounting course. He previously
taught at the University of Illinois, Pennsylvania State
University, University of Texas at Austin, University of
Chicago, and University of Michigan. He received his B.S.
from Pennsylvania State University and his M.A.S. and
Ph.D. from the University of Illinois; he is also a CPA.
Bob is a widely published author specializing in behavioral
accounting. He was selected as the AAA Outstanding
Educator in 2000. His prior text, Accounting and Human
Information Processing (Prentice Hall, 1981), was
awarded the AICPA/AAA Notable Contributions to the
Accounting Literature Award. He received this award again
in 1996 for a paper. He has published numerous articles
in the Journal of Accounting Research; Accounting,
Organizations, and Society; and other accounting
journals. He is past Vice President-Publications of the
American Accounting Association and is a member of the
American Institute of CPAs and the editorial boards of
The Accounting Review; Accounting, Organizations, and
Society; Journal of Accounting Literature; and Journal
of Behavioral Decision Making.
Patricia A. Libby
Patricia Libby is Chair of the Department of Accounting
and Associate Professor of Accounting at Ithaca College,
where she teaches the undergraduate financial accounting
course. She previously taught graduate and undergraduate
financial accounting at Eastern Michigan University and
the University of Texas. Before entering academe, she
Pat conducts research on using cases in
the introductory course and other parts of
the accounting curriculum. She has published articles in
The Accounting Review, Issues in Accounting Education,
and The Michigan CPA. She has also conducted seminars
nationwide on active learning strategies, including
cooperative learning methods.
Daniel G. Short
Daniel Short is Professor of Accounting and Dean of
the M.J. Neeley School of Business at Texas Christian
University in Fort Worth, Texas. Formerly he was Dean
at the Richard T. Farmer School of Business at Miami
University (Ohio) and the College of Business at Kansas
State University. Prior to that, he was Associate Dean
at the University of Texas at Austin, where he taught
the undergraduate and graduate financial accounting
courses. He also taught at the University of Michigan and
the University of Chicago. He received his undergraduate
degree from Boston University and his M.B.A. and Ph.D.
from the University of Michigan.
Dan has won numerous awards for his outstanding
teaching abilities and has published articles in The Wall
Street Journal, The Accounting Review, the Journal of
Accounting Research, and other business journals. He
has worked with a number of Fortune 500 companies,
commercial banks, and investment banks to develop and
teach executive education courses on the effective use of
accounting information. Dan has also served on boards of
directors in several industries, including manufacturing,
commercial banking, and medical services. He is currently
on the economic development committee of the Fort
Worth Chamber of Commerce.
The proven favorite
ver four
Bob Libby,
Pat Libby,
and Dan Short have
made Financial
Accounting into the
best-selling book on
the market*. How? By
helping the instructor
and student to
become partners in
learning, using a
remarkable learning
approach that keeps
students engaged
and involved in the
material from the
first day of class.
* Monument Information Resource,
2003 Report
Financial Accounting’s distinctive focus company method motivates
students by involving them in the business decisions of a real company,
demonstrating how financial accounting makes a difference in the success
of a firm. That, combined with pedagogical features and technology
assets that serve a variety of learning styles, makes Libby/Libby/Short
the textbook that both students and instructors agree is the best of its
kind on the market today.
of students and instructors alike.
Financial Accounting maintains its leadership by focusing on three key attributes:
REVELANCE. Libby/Libby/Short’s trademark focus company approach is your
best tool for demonstrating the relevance of financial accounting topics. Ethics
continues to be a crucial topic within accounting, and Financial Accounting
integrates coverage of ethical issues throughout the book. Furthering its real-world
applicability, the end-of-chapter cases tie into the bundled annual report from Pacific
Sunwear of California and the contrasting report from American Eagle Outfitters. This
gives students valuable practice in reading and interpreting real financial data. Finally,
Real-World Excerpts expand important chapter topics with insight into how real firms
use financial accounting to their competitive advantage.
Clarity. Do students complain that their textbook is hard to read? They don’t
if they’re reading Financial Accounting. Libby/Libby/Short’s clean, engaging writing
is cited as a consistent strength by both instructors and students. In addition, the
organization of the material is constantly refined to ensure maximum readability for
students and flexibility for teachers.
Technology Aides. Today’s students have divergent learning styles and
numerous time commitments, and they want technology supplements that help them
study more efficiently and effectively. McGraw-Hill’s Homework Manager and Homework
Manager Plus, Topic Tackler, and ALEKS for Financial Accounting provide students with
three powerful tools tied directly to Financial Accounting, fifth edition, that will help
them maximize their study time and make their learning experience more enjoyable.
In addition, a new Algorithmic Test Bank allows instructors to create an infinite
number of algorithm-generated quizzes and test assignments.
Libby/Libby/Short’s Financial Accounting is the proven choice for presenting financial
accounting in a clear, relevant approach that keeps students engaged throughout your
course. Read on for more insight into what has made this textbook such a success
with faculty and students.
The Financial Accounting
Libby/Libby/Short’s Digital Learning System complements the textbook every step of the way,
giving students the extra help they need while providing instructors with tools for teaching a
stimulating and rewarding class.
Topic Tackler Plus DVD
For today’s technologically savvy students,
Topic Tackler Plus is a DVD tutorial
that offers a virtual helping hand in
understanding the most challenging
topics of the financial accounting
course. Through a step-by-step sequence
of video clips, audio-narrated slides,
interactive practice exercises, and selftests, Topic Tackler offers help on two
key topics for every chapter, keeping your
students engaged and learning as
they read.
Topic Tackler Plus content is also accessible from the
textbook’s Online Learning Center, allowing students to access
these powerful resources anywhere, at any time.
Video clips provide real-world
perspectives from a variety
of accounting experts.
Video Clips
Audio-narrated slide shows
offer step-by-step coverage
of challenging topics and
make a great resource for
review. Many also feature
Narrated slides
Fun, interactive exercises
help students remember key
Self-grading quizzes cover all of
the main topics, providing an
ideal way to brush up before a
Concepts appearing in the text that
receive additional treatment in Topic
Tackler are marked with a unique icon.
Digital Learning System
Excel Templates for use with the
Annual Report Cases
If you’re going to work in accounting (or business in
general), you have to know Microsoft Excel. Students
use the real annual reports of American Eagle Outfitters
and Pacific Sunwear of California with accompanying
Excel Templates to manipulate real-world data and solve
problems. These assignments allow students to experience
problem solving as it truly happens in real companies. (The
annual reports are found in the textbook appendixes and
on this DVD. Prepared by Beth Kern at Indiana UniversitySouth Bend, the Excel Templates are found on the DVD and
on the book’s website.)
Algorithmic Test Bank
If you’ve ever thought that no test bank, however well made, could have all of the
problems you could possibly need, think again. The Algorithmic Test Bank available
with Libby/Libby/Short includes a problem generator that replicates the structure
of text problems while populating them with fresh numbers. Create unique versions
of every homework assignment, every quiz, every test—or use it to provide dozens
of similar but distinct problems for students to practice on.
Narrated Slides
The next best thing to a private lecture, Libby/Libby/Short’s
narrated slides combine spoken narration, animation, and
easy navigability to provide a comprehensive, easy-to-follow
study aid for students brushing up for a quiz or a test. Every
chapter has its own presentation that closely follows that
chapter’s organization, even reproducing key chapter figures
and exhibits.
Proven Learning Solutions
Financial Accounting offers a host of pedagogical tools that complement the ways
you like to teach and the ways your students like to learn. Some offer information
and tips that help you present a complex subject; others highlight issues relevant
to what your students read online or see on television. Either way, Financial
Accounting’s pedagogical support will make a real difference in your course and in
your students’ learning.
Financial Analysis
These features tie important chapter concepts
to real-world decision-making examples. They
also highlight alternative viewpoints and add
to the critical thinking and decision-making
focus of the text.
Self-Study Quizzes
This active learning feature engages the student,
provides interactivity, and promotes efficient
learning. Research shows that students learn best
when they are actively engaged in the learning
process. These quizzes ask students to pause
at strategic points throughout each chapter to
ensure that they understand key points before
moving ahead.
International Perspective
These sections highlight the emergence of
global competition and resulting business
issues throughout the text as well as the endof-chapter material.
Real-World Excerpts
These insightful excerpts appear throughout
the text and include annual report information
from the focus companies, as well as numerous
other companies, news articles from various
publications, analysts’ reports, 10-K forms,
press releases, and First Call notes.
Key Ratio Analysis
Students will be better prepared to use
financial information if they learn to evaluate
elements of financial performance as they
learn how to measure and report them. For this
reason, we include relevant key ratios in each
chapter in Key Ratio Analysis sections. Each
Key Ratio Analysis box presents ratio analysis
for the focus company in the chapter as well
as for comparative companies. Cautions are
also provided to help students understand the
limitations of certain ratios.
A Question of Ethics
These boxes appear throughout the text,
conveying the importance of acting responsibly
in business practice.
Focus on Cash Flows
Each of the first 12 chapters includes a
discussion and analysis of changes in the
cash flow of the focus company and explores
the decisions that caused those changes. The
early and consistent coverage of cash flows
encourages students to think more critically
about the decisions they will face as managers
and the impact those decisions will have on the
company’s cash flow.
Proven Learning Solutions
Organization of the Chapter Schematic
A unique feature of Libby/Libby/Short, this visual framework provides a powerful visual
schematic of each chapter’s content, easily enabling students to find exactly the chapter
topic or concept they’re looking for.
All Journal Entries Tied to the
Accounting Equation
Journal entries marked with (A), (L), (SE), (R), (E), or (X, if a contra-account) and plus
and minus signs in early chapters assist students in transaction analysis. In addition,
following each journal entry is a summary of the effects of the transaction on the
fundamental accounting equation.
Flexible End-of-Chapter
Content and Organization
Each chapter is followed by an extensive selection
of end-of-chapter assignments that examine single
concepts or integrate multiple concepts presented
in the chapter, arranged by level of difficulty and in
learning objective order. To maintain the real-world
flavor of the chapter material, they are often based
on other real domestic and international companies
and require analysis, conceptual thought, calculation,
and written communication. Assignments suitable
for individual or group written projects and oral
presentations are included in strategic locations.
Chapter Take-Aways: bulleted end-of-chapter summaries that compliment the learning objectives outlined at the beginning of the chapter.
Key Ratios: summary of the key ratios presented in the chapter.
Key Terms: page referenced to the chapter text.
Finding Financial Information: highlights the
chapter’s key concepts, numbers, and totals in an
easy-to-review graphic. The graphic includes
Balance Sheet, Income Statement, Statement of
Cash Flows, and Note Information.
Multiple Choice
Problems: cross-referenced in blue to the Alternative Problems.
Alternative Problems: similar in level and content to the end-of-chapter problems
Cases and Projects: include Annual Report Cases, Financial Reporting and Analysis
Cases, Critical Thinking Cases, and Financial
Reporting and Analysis Projects
What’s New in the Fifth Edition?
The primary goals of the fifth edition revisions are to provide instructors with more flexibility in key
topical coverage; to simplify explanations of complex topics; to make the end-of-chapter material match
instructor needs better; and to accurately reflect the exciting changes taking place in the accounting
environment. As a result, the authors have revised at least 50 percent of the end-of-chapter material in
each chapter, as well as making the detailed revisions as noted in the following sections.
1 3
Chapter 1
•Updated coverage of recent accounting scandals
•Coverage on new Sarbanes-
Oxley requirements
•New exhibit (Exhibit 1.7) summarizing the four basic financial statements
•New International Perspective feature
discussing International Accounting Standards Board
•Substantially revised end-of-chapter exercises and problems using new real-world companies and
•New annual report cases
and new financial reporting cases
Chapter 3
•Updated opening
discussion for Papa John’s
•New International
Perspective discussing foreign financial statements
•Updated articles and ratio
•Added summary chart to
enhance understanding of
how statements are linked
•Clarified requirement and
•Upgraded Team Project
to follow concept of a
continuous project from
prior and subsequent
•Substantially revised
end-of-chapter exercises
and problems using new
real-world companies and
•New annual report cases
2 4
Chapter 2
•Updated opening discussion for Papa John’s International
•Moved financial leverage
ratio later in the chapter
•Enhanced discussion and
visuals within Key Ratio
Analysis feature
•Updated articles and ratio
•Substantially revised
end-of-chapter exercises
and problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
•New annual report cases
Chapter 4
•Updated opening
discussion for Papa John’s
•Added new section on Analysis of Adjusting Entries
•New art integrated into
discussion of deferrals and
•Realigned discussion by
Revenues (deferred and
accrued) and Expenses
(deferred and accrued) in
fifth edition versus
Deferrals (revenues and
expenses) and Accruals
(revenues and expenses) in
fourth edition.
•Added summary exhibits—
Exhibits 4.3 and 4.4—for
deferrals and accruals to
highlight the differences
in the earning of revenue
(or incurring of expense)
versus cash receipts (or
•Expanded introductory
summary of accounts to be
adjusted in the Papa John’s
illustration to emphasize
the identification of
deferrals and accruals and
the timing of cash receipts
and payments
•Rearranged illustrations to
follow revisions made to
•Simplified account titles
to follow more closely
with end-of-chapter
account titles (e.g.,
Supplies Expense instead of
General and Administrative
•Updated articles and ratio
•Substantially revised end of-chapter exercises
and problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
•Included new discussion of International Accounting
Standards Board
•Added new self-study
•Simplified financial
statement presentations
•Substantially revised end
of chapter using new real
companies and numbers
•Added new financial
reporting and ethics cases
Chapter 6
•New focus company
(Deckers Outdoors, maker
of Teva sandals)
•New self-study
quiz on accounting for
doubtful accounts
•New self-study quiz on
aging of accounts
•Introduced new, simpler
presentation of aging
method for estimation of
doubtful accounts
•Substantially revised
end-of-chapter exercises
and problems using new
real-world companies and
5 7
Chapter 5
•Added coverage of recent
accounting scandals
and new Sarbanes-Oxley
•Added new exhibits
explaining the corporate
governance and accounting
communication process
•Introduced new discussion
of common-size income
Chapter 7
•Reorganized discussion of
effects of inventory
methods on financial
statement analysis moved
to follow ratio discussions.
•Simplified presentation of
cost of goods sold
•Introduced new contrast
company Ducati
•New step-by-step
self-study quizzes
What’s New?
•Added new basic exercises
on the effects of cost flow assumptions on cost
of goods sold and ending
inventory added to end of chapter material
•Substantially revised
end-of-chapter exercises
and problems using new
real-world company data
(Ford, Kodak, Dell,
American Eagle Outfitters,
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
value computations
•Revised payroll accounting
•Provided new discussion
showing relationship
between operating
activities and the creation
of current liabilities
•Expanded discussion of
lease liabilities
•Substantially revised
end-of-chapter exercises
and problems using new
real-world companies and
numbers and expanded
number of present value
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
payments to an annual
basis to reduce repetitive
•Expanded discussion of
how interest expense is
•Substantially revised end of-chapter exercises and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
Chapter 13
•Revised chapter to be used
any time after Chapter 4
•Revised chapter to be used
to cover direct, indirect, or
both methods for
presenting the Operating
•Simplified presentation
of the steps involved in
preparing the operating
section using the indirect
•Expanded use of T-accounts
to explain indirect method
•Added new problems with
data that can be assigned
for direct and/or indirect
•Added Enron-based ethics
•Substantially revised end of-chapter exercises and
problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
12 14
Chapter 8
•Updated all articles and
real-world information
•Clarified discussions/
illustrations on revenue
and capital expenditures,
depreciation concepts,
depreciation methods, and
•Substantially revised
end-of-chapter exercises
and problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
Chapter 9
•New focus company
•Introdcued new chapter
supplements—using Excel
and Future Value Concepts
to compute present values
•Integrated Excel commands
in discussion of present
Chapter 10
•Moved discussion of bond basics into new section
•Focused discussion of
types of bonds on only the
most commonly used bonds
•New chapter supplement—
using Excel to determine
the present value of bonds
•Integrated Excel commands
into discussion of
computing the value of
•Expanded amortization
schedules to include full
life of bonds
•Updated discussion of
early retirement of bonds
to include rule change
•Reorganized discussion of
straight-line and effective interest amortization to
permit users to easily
cover either or both
•Changed all interest
Chapter 11
•Updated real-world
•Removed coverage of stock
issued for noncash assets
so focus is now on the
most common transactions
•Substantially revised end of-chapter exercises and
problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
Chapter 12
•Significantly updated all
real world excerpts and
•Added a marginal visual
•Substantially revised end of-chapter exercises and
problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
Chapter 14
•Updated focus and
comparison companies
•Revised financial analysis
of focus and comparison
•Substantially revised end of-chapter exercises and
problems using new
real-world companies and
•Upgraded Team Project to
follow concept of a
continuous project from
prior and subsequent
Teaching With Technology
classroom; say hello to the power and flexibility you’ve been
waiting for in creating assignments.
McGraw-Hill’s Homework Manager is also a useful grading
tool. All assignments can be delivered over the Web and
graded automatically, with the results stored in your private
gradebook. Detailed results let you see at a glance how each
student does on an assignment or an individual problem—you
can even see how many tries it took the student to solve it.
Learn more about McGraw-Hill’s Homework Manager by
referring to the front cover insert.
Online Learning Center
For instructors, Libby’s Online Learning Center contains the
Instructor’s Resource Manual, PowerPoint slides, Solutions
Manual, Excel Templates tied to the end-of-chapter material,
and the Annual Report Cases Templates, all organized by
chapter. There are also links to professional resources.
In addition, for students and instructors, there are two
appendixes linked to the text material, check figures, articles
tied to end-of-chapter material, Web links to the focus
company financial statements, and McGraw-Hill’s Homework
Manager (see the next item). Instructors can pull all of this
material into their PageOut course syllabus or use it as part of
another online course management system.
The student section of the site includes (in addition to the
preceding elements) Topic Tackler Plus content (see page VI),
self-quizzes, learning objectives, PowerPoint slides, chapter
outlines, chapter take-aways, and digital flashcards.
Homework Manager
ISBN 978-007322614-9 (ISBN 0073226149)
McGraw-Hill’s Homework Manager is a Web-based supplement
that duplicates problem structures directly from the end-ofchapter material in Financial Accounting, fifth edition, using
algorithms to provide a limitless supply of online self-graded
practice for students or assignments and tests with unique
versions of every problem. Say goodbye to cheating in your
Manager Plus
ISBN 978-007322587-6 (ISBN 0073225878)
McGraw-Hill’s Homework Manager Plus gathers all of Financial
Accounting’s online student resources under one convenient
access point. Combining the power and flexibility of McGrawHill’s Homework Manager with other proven technology tools,
McGraw-Hill’s Homework Manager Plus provides the best value
available for the student eager to embrace the full benefits of
online study and review.
In addition to McGraw-Hill’s Homework Manager, students may
also access:
Only available through McGraw-Hill’s Homework Manager
Plus, NetTutor connects students with qualified tutors online.
Students can work with an online tutor in real time, or post a
question to be answered within 24 hours. Homework Manager
Plus adopters receive unlimited tutoring time on NetTutor.
Interactive Online Version of the Textbook
In addition to the textbook, students can rely on this online
version of the text for a convenient way to study. This
interactive web-based textbook contains hotlinks to key
definitions and real company websites and is integrated with
Homework Manager to give students quick access to relevant
content as they work through problems, exercises, and
practice quizzes.
L ed
ger Soft
Carol Yacht’s General
Ledger and Peachtree
Complete 2007 CD-ROM
Carol Yacht’s General Ledger Software is
McGraw-Hill/Irwin’s custom-built general ledger package.
Carol Yacht’s General Ledger can help your students master
every aspect of the general ledger, from inputting sales and
cash receipts to calculating ratios for analysis or inventory
Carol Yacht’s General Ledger allows students to review an
entire report and then double-click any single transaction to
review or edit it. The report will then be updated on the fly to
include the revised figures. When it comes to learning how an
individual transaction affects the outcome of an entire report,
no other approach matches that of Carol Yacht’s General
Also on Carol Yacht’s General Ledger CD, students receive the
educational version of Peachtree Complete 2007, along with
templates containing data for many of the text exercises
and problems. Familiarity with Peachtree Complete will be
essential for students entering the job market, and Carol
Yacht’s Peachtree templates for use with Libby/Libby/Short’s
Financial Accounting, fifth edition, ensures that they get
plenty of practice.
Students can use Carol Yacht’s General Ledger to
GL solve numerous problems from the textbook; the
data for these problems are already included on
Carol Yacht’s General Ledger CD-ROM. You can even
populate Carol Yacht’s General Ledger with your own
custom data.
ALEKS (Assessment and LEarning in Knowledge Spaces)
delivers precise, qualitative diagnostic assessments of
students’ knowledge, guides them in the selection of
appropriate new study material, and records their progress
toward mastery of curricular goals in a robust classroom
management system.
ALEKS interacts with the student much as a skilled human
tutor would, moving between explanation and practice as
needed, correcting and analyzing errors, defining terms and
changing topics on request. By sophisticated modeling of
a student’s knowledge state for a given subject, ALEKS can
focus clearly on what the student is most ready to learn next.
When students focus on exactly what they are ready to learn,
they build confidence and a learning momentum that fuels
ALEKS Math Prep for Accounting provides coverage of the
basic math skills needed to succeed in introductory financial
accounting while ALEKS for the Accounting Cycle provides
a detailed, guided overview through every stage of the
accounting cycle.
For more information, visit the ALEKS website at
PageOut is McGraw-Hill’s unique point-and-click course
website tool. With PageOut, you can post your syllabus
online, assign McGraw-Hill Online Learning Center or eBook
content, add links to important off-site resources, and
maintain student results in the online grade book. PageOut
is free for every McGraw-Hill/Irwin user and, if you’re short
on time, we even have a team ready to build your site from
You can also use PageOut content with WebCT,,
or Blackboard. To learn more about these digital solutions,
Developed with the help of our partner Eduprise, the
McGraw-Hill Knowledge Gateway is an all-purpose service and
resource center for instructors teaching online. While training
programs from WebCT and Blackboard will help teach you their
software, only McGraw-Hill has services to help you actually
manage and teach your online course, as well as run and
maintain the software. To see how these platforms can assist
your online course, visit And
remember: All Libby digital content is easily incorporated into
any online course management system.
Supplements for the Instructor
Online Learning Center
See page (XIV) for details.
Instructor’s Resource Manual
ISBN 978-007293126-6 (ISBN 0072931264)
Prepared by Kathryn Yarbrough at University
of North Carolina-Charlotte. All supplements,
including the Test Bank, Videos, Study Guide, and
PowerPoint slides, are topically cross-referenced
in the IRM to help instructors direct students
to specific ancillaries to reinforce key concepts. Transparency
masters of text exhibits are included. Electronic files are available
on the website.
PowerPoint Slides
Prepared by Jon Booker and Charles Caldwell at Tennessee
Technological University and Susan Galbreath at David Lipscomb
University. Completely customized PowerPoint presentations for
use in your classroom. They are available on the Instructor CDROM and the website.
Solutions Acetates
ISBN 978-007293124-2 (ISBN 0072931248)
These overhead transparencies provide both in-class visuals as
well as solutions to most of the end-of-chapter material.
Test Bank (Print version)
ISBN 978-007293119-8 (ISBN 0072931191)
Prepared by Anne Clem at Iowa State University.
This comprehensive Test Bank includes more than
3,000 true/false, multiple choice, essay, and
matching questions, including questions on ratios
and ethics which meet requirements of AACSB
Standards on Assurance Learning.
EZ Test
McGraw-Hill’s EZ Test is a flexible and easy-to-use electronic
testing program that allows instructors to create tests from
book-specific items. EZ Test accommodates a wide range of
question types and allows instructors to add their own questions.
Multiple versions of the test can be created, and any test can
be exported for use with course management systems such as
WebCT, BlackBoard, or PageOut. EZ Test Online is a new service
that gives instructors a place to easily administer EZ Test-created
exams and quizzes online. The program is available for Windows
and Macintosh environments.
Instructor Excel Templates
These Excel Templates allow students to develop
important spreadsheet skills by using them to solve selected
end-of-chapter assignments. They are available on the Instructor
CD-ROM and on the website.
e cel
Solutions Manual
ISBN 978-007293120-4 (ISBN 0072931205)
Prepared by Robert Libby, Patricia Libby, and
Daniel Short. Provides solutions for end-of-chapter
questions, mini-exercises, exercises, problems, and
cases. Electronic files are available on the website.
Algorithmic-Diploma Testbank (from Brownstone)
ISBN 978-007321661-4 (ISBN 0073216615)
Add and edit questions; create up to 99 versions of each test;
attach graphic files to questions; import and export ASCII files;
and select questions based on type, level of difficulty, or learning
objective. This software provides password protection for saved
tests and question databases and is able to run on a network.
Instructor CD-ROM
ISBN 978-007293130-3 (ISBN 0072931302)
This integrated CD-ROM allows you to access most of the text’s
ancillary materials. You no longer need to worry about the
various supplements that accompany your text. Instead, almost
everything is available on one convenient CD-ROM: PowerPoint
slides, Solutions Manual, Instructor’s Resource Manual, Test Bank
and Computerized Test Bank, Annual Report Cases Templates,
Excel Templates for the end-of-chapter material (along with a
guide), text exhibits, video, and links to the web.
L ed
ger Soft
Carol Yacht’s General Ledger and Peachtree Complete
See page (XIV).
Check Figures
Prepared by Paula Miller at Collin County Community College,
provide answers to selected problems and cases. These figures are
available on the book’s website.
Instructor’s Manual to Accompany the MBA Companion
ISBN 978-007293132-7 (ISBN 0072931329)
Prepared by Peggy Bishop Lane and Catherine Schrand, both of
The Wharton School at the University of Pennsylvania. The MBA
Companion includes expanded material on leases and deferred
Instructor’s Manual to Accompany Understanding Corporate
Annual Reports by William R. Pasewark
ISBN 978-007310182-8 (ISBN 0073101826)
Financial Accounting Video Library
ISBN 978-007237616-6 (ISBN 0072376163)
Created to stimulate classroom discussion, illustrate key
concepts, and review important material. Selected videos were
produced by Dallas TeleLearning of the Dallas County Community
College District ©1999. To acquire Accounting in Action as a
Comprehensive Telecourse package, call Dallas TeleLearning at
1-866-347-8576 or visit its website at
Supplements for the Student
e cel
Topic Tackler Plus DVD
ISBN 978-007293129-7 (ISBN 0072931299)
See page (VI) for details.
Student Excel Templates
These templates are tied to selected end-of-chapter
material and are available on the website.
Online Learning Center
See page (XIV) for details.
Telecourse Guide
ISBN 978-007293118-1 (ISBN 0072931183)
This guide accompanies the instructional videos
produced by Dallas County Community College and has
been revised for the fifth edition.
MBA Companion
ISBN 978-007-293131-0 (ISBN
Prepared by Peggy Bishop Lane and
Catherine Schrand, both of The Wharton
School at the University of Pennsylvania.
This supplement includes expanded
material on topics prominent in MBA-level programs,
including leases and deferred taxes.
Working Papers
ISBN 978-007293122-8 (ISBN 0072931221)
Prepared by Robert Libby, Patricia Libby and Daniel
Short. Contains all the forms necessary for completing
end-of-chapter assignments.
Study Guide
ISBN 978-007293121-1 (ISBN
Prepared by Jeannie Folk of College of
DuPage. An outstanding learning tool,
this guide gives students a deeper
understanding of the course material
and reinforces, step by step, what they
are learning in the main text.
PowerPoint Notes
ISBN 978-007326269-7 (ISBN 0073262692)
Selected PowerPoint slides are reproduced for students
in a handy booklet, allowing them to focus on the
lecture and selectively annotate the slide rather than
scramble to recreate it themselves.
Understanding Corporate Annual Reports
by William R. Pasewark
ISBN 978-007310181-1 (ISBN 0073101818)
This financial analysis project emphasizes the
interpretation and analysis of financial statements. It
contains extensive instructions for obtaining an annual
report from a publicly traded corporation. Students
gain hands-on experience working with annual reports
and are then better prepared to understand financial
accounting concepts and their use in the business
Computerized Accounting Practice Sets
Business simulations and practice sets using Windows
by Leland Mansuetti and Keith Weidkamp of Sierra
College include:
Granite Bay Jet Ski, Level 1 ISBN 978-007296762-5
(ISBN 0072947624)
Granite Bay Jet Ski, Level 2 ISBN 978-007308016-1
(ISBN 0073080160)
Wheels Exquisite, Inc. ISBN 978-007242845-2
(ISBN 0072428457)
Thunder Mountain Snowmobile ISBN 978-007293188-4
(ISBN 0072931884)
Gold Run Snowmobile, Inc. ISBN 978-007295788-4
(ISBN 0072957883)
Over the years many dedicated instructors have devoted their time and effort
to help us make each edition better. We would like to acknowledge and thank
all of our colleagues who have helped guide our development decisions for
this edition and all previous editions. This text would not be the success it is
without the help of all of you.
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Previous Edition Reviewers
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State University
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Ben Trotter, Texas Tech University
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We are grateful to the following individuals who
helped develop, critique, and shape the extensive
ancillary package: Anne Clem, Iowa State
University; Jeannie Folk, College of DuPage; Beth
Kern, University of Indiana-South Bend; Barbara
Schnathorst, The Write Solution, Inc.; Ann Selk,
University of Wisconsin—Green Bay; Kimberly
Temme, Maryville University; Katherine Yarbrough,
University of North Carolina—Charlotte; Peggy
Bishop Lane, The Wharton School at the University
of Pennsylvania; Cathy Schrand, The Wharton
School at the University of Pennsylvania; Jon
Booker, Tennessee Technological University;
Charles Caldwell, Tennessee Technological
University; Susan Galbreath, David Lipscomb
University; Jack Terry, ComSource Associates, Inc.;
Deborah Jackson-Jones, Boardwork, Inc.
e also received invaluable input and support through the years from present and
former colleagues and students. We also appreciate the additional comments,
suggestions, and support of our students and our colleagues at Cornell
University, Ithaca College, and Texas Christian University.
Last, we thank the extraordinary efforts of a talented group of individuals at McGrawHill/Irwin who made all of this come together. We would especially like to thank our
publisher, Stewart Mattson; our senior sponsoring editor, Steve DeLancey; Kimberly
Hooker, our senior developmental editor; Marc Chernoff, our marketing manager; Adam
Rooke, our designer; Mary Conzachi, our lead project manager; Dan Wiencek, our
copywriter; Sesha Bolisetty, our production supervisor; Elizabeth Mavetz, our media
producer; Matthew Perry, our media project manager; Carol Loreth, our supplements
coordinator; Jeremy Cheshareck, our photo research coordinator; and Emily Tietz, our
photo researcher.
Robert Libby
Patricia A. Libby
Daniel G. Short
To Our Student Readers
This book is aimed at two groups of readers:
1 Future managers, who will need to interpret and use financial statement information in business decisions.
2 Future accountants, who will prepare financial statements for those managers.
Future managers need a firm basis for using financial statement
information in their careers in marketing, finance, banking,
manufacturing, human resources, sales, information systems, or other
areas of management. Future accountants need a solid foundation for
further professional study.
Both managers and accountants must understand how to use
financial statements in making real business decisions to perform
their duties successfully. The best way to learn to do this is to study
accounting in real business contexts. This is the key idea behind our
focus company approach, which we introduce in the first chapter and
which integrates each chapter’s material around a focus company,
its decisions, and its financial statements. The focus companies
are drawn from 12 different industries, providing you with a broad
range of experience with realistic business and financial accounting
practices. In each chapter, you will actually work with these real
companies’ statements and those of additional contrast companies.
When you complete this book, you will be able to read and
understand financial statements of real companies. We help you
achieve this goal by:
1 Selecting learning objectives and content based on the way that seasoned managers use financial statements in modern
businesses. We emphasize the topics that count.
2 Recognizing that students using this book have no previous exposure to accounting and financial statements and often little exposure to the business world. We take you through the
financial statements three times at increasing levels of detail (in
Chapter 1, Chapters 2 through 5, and Chapters 6 through 14). This is the secret to our “building block approach.”
3 Helping you “learn how to learn” by teaching efficient and effective approaches for learning the material. Keep these
learning hints in mind as you work your way through each
4 Providing regular feedback in Self-Study Quizzes, which occur throughout each chapter. Complete the quizzes before you move
on. Then check your answers against the solution provided in the
footnote. If you are still unclear about any of the answers, you
should refer back to the chapter material preceding the quiz
before moving on.
5 Highlighting the Key Terms in bold print and repeating their definitions in the margins. You should pay special attention to the definitions of these terms and review them at the end of the
chapter. A handy glossary is provided at the end of the book;
consult it if you forget the meaning of an important term.
6 Introducing the Key Financial Ratios used to assess different
elements of financial performance at the same time you are
learning how to measure and report those elements. These will
show you what kinds of accounting information managers use and
how they interpret it.
At the end of each chapter, you can test what you have learned
by working the Demonstration Cases. Working problems is one of
the keys to learning accounting. Good luck in your first accounting